Wynn Resorts, Limited (NASDAQ:WYNN) Q4 2022 Earnings Call Transcript

Wynn Resorts, Limited (NASDAQ:WYNN) Q4 2022 Earnings Call Transcript February 8, 2023

Operator: Welcome to the Wynn Resorts Fourth Quarter 2022 Earnings Call. All participants are in a listen-only mode until the question-and-answer session of today’s conference. This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the line over to Julie Cameron-Doe, Chief Financial Officer. Please go ahead.

Julie Cameron-Doe: Thank you, operator, and good afternoon, everyone. On the call with me today are Craig Billings, Brian Gullbrants, and Steve Whiteman in Las Vegas. Also on the line are Ian Coughlan, Linda Chen, Frederic Luvisutto and Jenny Holaday. I want to remind you that we may make forward-looking statements under safe harbor federal securities laws, and those statements may or may not come true. I will now turn the call over to Craig Billings.

Craig Billings: Thanks, Julie. Good afternoon, everyone, and thanks for joining us. As we prepared for this call, I looked at an old analyst note that was published after our Q4 2019 earnings. The expectation for 2022 EBITDA Wynn Las Vegas in that note was $482 million. Here we are three years in the global pandemic later and Wynn Las Vegas just printed $816 million of normalized adjusted property EBITDA, $816 million. I’m confident that this is an all-time record for a stand-alone Las Vegas strip property. And mind you, we did not deliver this result by nickel and diming on service standards and reducing staff to drive operating leverage. The team did it by focusing on what we do best. Great products, great service, great programming, and it showed in our market share and pricing power.

The Wynn Las Vegas team absolutely crushed it in 2022. Our business in Vegas is stronger and more relevant than it has ever been. I’ll talk more about the fourth quarter in Vegas in our outlook in a moment. Turning to several other significant events, I’d like to touch on our concession renewal and the reopening of Macau. I was in Macau for nearly three weeks in December. And after going through the then required quarantine, I was fortunate to attend the signing ceremony for our new concession. I’m proud of the plan that we put forward as part of the concession renewal and believe that the CapEx and programming we proposed will be additive to our business there over the coming years. I would like to thank the government of Macau for their faith in us.

And importantly, I would like to thank the Wynn Macau team for their dedication to our business over the past three very difficult years. Fortunately, recent actions by both Macau and Mainland authorities to reopen the market give us great confidence that the difficulties are behind us and the near-term future there much brighter. Over the past several weeks, we’ve welcomed back an increasing number of guests as the region has reopened to travel and tourism in a meaningful way. With our premium product and service levels, we are well positioned to lead the post-COVID recovery in Macau, and our strengths were evident during the recent Chinese New Year holiday period. In the casino, mass table drop reached 95% of 2019 Chinese New Year levels with strong play across the spectrum from premium mass to core mass.

In direct VIP, turnover was 40% above pre-COVID Chinese New Year levels. And importantly, we estimate that our hold-normalized GGR market share during the month of January was consistent with 2019 levels despite all the changes in the junket environment, define the expectations of those who continue to incorrectly believe that we are solely a VIP focused organization. On the non-gaming side, hotel occupancy was 96%, and our tenant retail sales increased 34% compared to Chinese New Year 2019. Overall, during the Chinese New Year period, we delivered our strongest EBITDA performance since the onset of the pandemic, approximately $4 million of normalized EBITDA per day. Turning back to Las Vegas. The team at Wynn Las Vegas turned in a fourth quarter record with $219 million of EBITDA.

We saw broad-based strength across casino, hotel, F&B, entertainment and retail, all well above Q4 2021 levels, despite the difficult year-over-year comps. Our investment in people, facilities and programming and our team’s deep sense of personal ownership of our business continue to drive growth. We continue to monitor economic trends and forward bookings at Wynn Las Vegas. We’re encouraged that the strength we have experienced over the past several quarters has continued into Q1. Similarly, our forward-looking indicators also remain quite strong despite well-known macro concerns as room bookings are pacing at/or above pre-COVID-19 levels on substantially higher ADRs. Turning to Boston. Like Vegas, Encore had a strong quarter, generating $63 million of EBITDAR.

We saw strength across the casino with record gross gaming revenue and on the non-gaming side with strong hotel revenue, driven by both ADR and occupancy. The strength has continued into the first quarter with EBITDA per day in January, largely consistent with trends we have experienced over the past few quarters. We were also pleased to launch retail sports betting at Encore Boston Harbor last week, averaging a little over 0.5 million a day in handle over the first six days, which is about 80% of the average daily handle at Wynn Las Vegas. During those six days, we also signed up about 30% more Wynn Rewards members than normal. We continue to expect the book to be a significant driver for new customer acquisition over time. We also continue to advance our plans for our upcoming development project across the street from the property that will include incremental parking, food and beverage and entertainment amenities.

At Wynn Interactive, our overall EBITDA burn rate in the quarter ticked up sequentially to $28 million due to a well-publicized World Series bet that went against us. Adjusted for that single bet, burn was roughly flat. Our team continues to stay disciplined on cost while driving improved marketing efficiency. We’re looking forward to the potential for a significant catalyst for WynnBET in Massachusetts with the combination of our recently launched retail book and the expected upcoming launch of online sports betting. Lastly, we are quickly advancing our planning for Wynn Al Marjan Island, our integrated resort in the UAE. We’re in the late stages of programming for the resort, and I expect we will be driving piles for the foundation of the property by the middle of the year.

I also expect we will share renderings, programming and plans publicly over the next few months. The more time we spend in that market, the more confident we are in the project. With that, I will now turn it over to Julie to run through some additional details on the quarter. Julie?

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Julie Cameron-Doe: Thank you, Craig. At Las Vegas, we generated a fourth quarter record of $219.3 million in adjusted property EBITDA on $585.5 million of operating revenue during the quarter, lower-than-normal hold negatively impacted EBITDA by around $10.5 million in Q4. Our hotel occupancy was 89.9% in the quarter, up 350 basis points year-over-year and up 50 basis points versus Q4 2019. Importantly, we’ve stayed true to our luxury brand and continued to compete on quality of product and service experience with our overall ADR reaching a record $492 during Q4 2022, up 11.8% versus Q4 2021 and 53% above Q4 2019 levels. Our other non-gaming businesses saw broad-based strength across F&B, entertainment and retail, which were up nicely year-over-year and also well above pre-pandemic levels.

In the casino, our Q4 2022 slot handle increased 20.9% year-over-year and was 69% above Q4 2019 levels. Similarly, our table drop was up 1.1% year-over-year and was 43% above Q4 2019 levels, despite still suppressed international play during the quarter due to COVID-related travel challenges. The team in Vegas has done a great job of controlling costs without negatively impacting the guest experience, delivering adjusted property EBITDA margin of 37.4% in the quarter. On a hold-normalized basis, our EBITDA margin was up approximately 1,300 basis points compared to Q4 2019. OpEx, excluding gaming tax per day was $3.8 million in Q4 2022, up 25% compared to Q4 2019 levels but well below the 59% increase in operating revenue. In Boston, before getting into the details, I’d like to point out that following the closing of the sale leaseback transaction on December 1, we’re now reporting adjusted property EBITDAR for this business.

In Q4 2022, we generated adjusted property EBITDA of $63.3 million with EBITDA margin of 29%. We saw broad-based strength across casino and nongaming during the quarter. In the casino, we generated $190 million of GGR, a property record with strength in both tables and slots. Our nongaming revenue grew 13% year-over-year to a record $56.8 million with particular strength in the hotels, driven by 93.9% occupancy and a $404 ADR. We’ve stayed very disciplined on the cost side with OpEx, excluding gaming tax per day of approximately $1.17 million in Q4 2022. This was a decrease of over 8% compared to $1.3 million per day in Q4 2019 and up modestly relative to Q3 2022. As we’ve discussed on prior calls, the year-over-year EBITDA and OpEx comps were impacted by a combination of contractual labor agreements, which added around $45,000 per day to our OpEx base, beginning late in Q2 2022, along with a nonrecurring benefit of $2 million in Q4 last year.

We’re well positioned to drive strong operating leverage as we continue to grow the top line over time. Our Macau operations delivered an EBITDA loss of $59.1 million in the quarter on $190.3 million of operating revenues. Lower than normal hold negatively impacted EBITDA by around $25 million in Q4. While the COVID situation in the region was challenging during Q4, as Craig noted, we were encouraged by the meaningful uptick in visitation and demand we experienced during the recent Chinese holiday period. Our OpEx, excluding gaming tax, was approximately $2 million per day in Q4, a decrease compared to $2.4 million in Q4 2021. The team has done a great job remaining disciplined on costs in a difficult operating environment. Longer term, we are well positioned to drive strong operating leverage as the business recovers over time.

In terms of the new concession, we approached the tender process very prudently, carefully balancing our commitments to the government with our responsibilities to our shareholders and, of course, our liquidity position. We’re currently advancing through the design and planning stages, but these projects require a number of government approvals creating a wide range of potential CapEx in the very near term. As such, for 2023, we expect CapEx related to our concession commitments to range between $50 million to $220 million. Our future non-gaming investments, including new center set to be home of a unique spectacle show and innovative food halls and an events and entertainment center. As Craig noted, we believe these investments play into our strength as we have a demonstrated track record of introducing innovative non-gaming investments that drive increased tourism and ultimately, strong shareholder returns.

Turning to Wynn Interactive. Our EBITDA burn rate increased sequentially to $28.3 million in Q4 2022. However, adjusting for the well-publicized World Series bet that Craig mentioned, it was roughly flat with our Q3 2022 burn rate of $17.7 million. The team continues to control costs while driving improved marketing efficiencies. Moving on to the balance sheet. Our liquidity position remains very strong with global cash and revolver availability of approximately $4.5 billion as of December 31. This was comprised of $952 million of total cash and available liquidity in Macau and $3.5 billion in the U.S. These numbers exclude the undrawn $500 million intercompany revolving credit facility Wynn Resorts entered into with Wynn Macau. We were pleased to close the sale leaseback transaction for the real estate of Encore Boston Harbor on December 1 with gross proceeds of $1.7 billion, further bolstering our already strong liquidity position.

Importantly, the combination of very strong performance in Las Vegas and Boston, with the properties generating $1.04 billion of adjusted property EBITDA during 2022 together with our robust liquidity, creates a very healthy leverage profile in the U.S. With our properties performing well in each of our markets and our robust liquidity, I’d like to note our intention to repay our upcoming May 2023, Wynn Las Vegas bond maturity with cash from the balance sheet, reducing our domestic gross leverage by $500 million. Finally, our CapEx in the quarter was $27 million, primarily related to normal course maintenance. With that, we’ll now open up the call to Q&A.

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Q&A Session

Operator: Our first question comes from Carlo Santarelli with Deutsche Bank.

Carlo Santarelli: Craig, Julie, whoever wants to kind of take this one. Craig, I know you spoke a little bit about kind of what you guys saw in Macau during Chinese New Year. To the extent you’re willing to kind of comment on what you’ve seen in the aftermath and kind of the weeks following the holiday, that would be great.

Craig Billings: Sure. Thanks, Carlo. It’s been pretty good, actually. Frederic, do you want to take — do you want to provide a little more color on that?

Frederic Luvisutto: Sure, Craig. Thank you, Carlo. We have seen typically after post Chinese New Year in the past, the period does see a slowdown. But we have been very encouraged to see the business remaining very, very strong with mass gaming, direct VIP and retail sales better than previously similar period in the past. So, we have seen the resilience of the business post Chinese New Year, I’m very encouraged with that.

Carlo Santarelli: Great. Thank you. That’s helpful. And then, Craig, you talked a little bit about, obviously, what you saw on the VIP side. I believe you said direct VIP was 40% above or so. That was 2019 Chinese New Year levels. Can you comment at all as to what the experience has been with whatever junket VIP there is in the market today?

Craig Billings: Yes. There was some junket activity over the course of Chinese New Year. Obviously, the situation has changed a lot from the pre-COVID period. I think it’s actually a little bit too early to call out what role the gaming promoters and the junkets will play in the market, but there certainly was some activity.

Operator: Our next caller is Joe Greff with JPMorgan.

Joe Greff: Sort of following on Carlo’s question, on what you saw in Chinese New Years in the period. Since then, can you talk about the migration of the junket VIP business into the direct and into the premium mass component of your mass business? How do you — so do you think — what otherwise would have been the junket, what percentage of that do you think is migrating versus maybe not coming back quite yet?

Craig Billings: I think it’s — Joe, I think it’s way too early to be talking about percentages given the market really just fully reopened on January 8th, so really a month now. We certainly are seeing former junket customers migrate into both, premium mass and into direct. Remember, direct is tricky because there you’re talking about credit extension. And so you have to be quite prudent in how you manage the direct business. But unfortunately, it’s just a little too early. What I would say is volumes came back, volumes came back strong. The narrative that we’re VIP focused, I think, proves to be pretty false. We competed very strongly during the Chinese New Year period, and we’re incredibly proud of the results that we had.

Joe Greff: And when you look back in 2019, we always thought that the direct VIP component was something around 10% to 20% of the total VIP turnovers. Are we fair in picking that? Can you remind us of that?

Craig Billings: You are. You are.

Joe Greff: Okay. That’s all for me. Thank you.

Operator: Our next caller is Shaun Kelley with Bank of America.

Shaun Kelley: Just was hoping to get a little bit more color on maybe the cost and margin picture as things start to rebound in Macau. Julie, I think in the prepared remarks, you mentioned you were down around $2 million a day in the fourth quarter in Macau, if I called it correctly, down from $2.4 million back in 2019. Just as you’re sort of re-ramping, I mean, I think we all really underappreciated the amount of operating leverage that was going to happen in certain markets in the United States, and kind of trying to put some of the tea leaves together around how this may play out for Macau. So just any kind of thoughts on expenses and margins as the recovery begins here?